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Warner v. McLay

Not Provided
103 A. 113 (1918)
ELI5:

Rule of Law:

When a contract is breached before completion, the non-breaching contractor is entitled to recover their expenditures made in part performance plus any lost profits. Lost profits are calculated as the total contract price minus the projected total cost of labor and materials that would have been required to complete the contract.


Facts:

  • A plaintiff contractor entered into a contract with a defendant to perform work and supply materials.
  • The plaintiff began performance on the contract, incurring expenditures for work and labor.
  • The plaintiff hired a subcontractor, Russell, and paid him for work performed as part of the contract.
  • Before the plaintiff could complete the work, the defendant breached the contract, preventing full performance.

Procedural Posture:

  • The plaintiff filed a lawsuit against the defendant for breach of contract in the trial court.
  • The case was tried before a jury.
  • The jury found in favor of the plaintiff and awarded damages.
  • The defendant (appellant) appealed the judgment to the state's highest court, arguing that the trial court made errors, including giving improper jury instructions on the calculation of damages.

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Issue:

Did the trial court commit a reversible error by instructing the jury that a contractor's lost profits could be calculated as a 'reasonable profit,' such as ten percent, rather than providing the correct legal formula of contract price minus the total cost of completion?


Opinions:

Majority - Roraback, J.

Yes. The trial court's instruction on damages was insufficient and incorrect. The proper method for calculating a contractor's lost profits is to subtract the total cost and expense required to complete the work from the original contract price; this difference represents the profit the contractor would have realized. The trial court erred by failing to define profits or instruct the jury on this correct calculation method. Instead, it improperly adopted the plaintiff's claim for a 'reasonable profit' of ten percent as the legal rule, which was an insufficient guide for the jury's determination of damages.



Analysis:

This decision reaffirms the fundamental principle of expectancy damages in breach of contract cases, specifically within the construction context. It clarifies that lost profits are not a speculative or 'reasonable' figure but must be calculated based on a specific formula: contract price less the cost of completion. The ruling underscores the trial court's critical duty to provide juries with precise, legally correct instructions on damages to prevent awards based on speculation or a party's unsupported claims. This precedent ensures that damage calculations in such cases are tied directly to the provable economic loss flowing from the breach.

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